Vishal Sikka opens up infinite possibilities for Infosys

Infosys grows at 9.1% in 2015-16 but expects to do much better next year and is on path to become an industry trendsetter again.Anirban Sen | ET Bureau | April 16, 2016, 08:10 IST

With a strong quarter, a good year and the forecast of even better times, Infosys Chief Executive Officer Vishal Sikka on Friday signalled the return of a pattern of normalcy at India’s second-largest software services company.

By growing at 9.1% in 2015-16, Infosys did not beat the industry average - that is expected to be 12.3%, according to Nasscom - but said that it would do better than most this fiscal year, and Sikka, especially, reiterated that he was making strategy with his eyes on the far horizon which is rapidly closing in.

"I believe there is a need for a new kind of company that is based on innovation," said Sikka, 48, who joined Infosys in June 2014 from Germany’s SAP after cofounder NR Narayana Murthy unexpectedly cut short his comeback from retirement amid an exodus of talent and slowing growth. "That journey has just begun," he said.

During the fourth quarter of fiscal 2016, Infosys’ top line grew by 1.6% and its operating margin improved by 50 basis points to 25.4%, bettering expectations. The company announced a final dividend of Rs 14.25 per share. Revenue growth in 2016-17, it said, would be in the range of 11.8-13.8%, compared to Nasscom’s projection for 10-12% export growth for the industry.

Shares of Infosys were trading 8.79% higher at $20 on the New York Stock Exchange at 10 pm (India time). Indian stock markets were closed on Friday for the Ram Navami holiday.

Sikka, who is regarded as the architect of SAP’s best-selling in-memory database software HANA, has been attempting to reengineer Infosys around the themes of innovation and a focus on the customer. His so-called ‘Renew and New’ strategy, analysts said, appears to be paying dividends.

While the pace of growth has picked up, employee attrition levels are down, and the stock markets are showing their faith - Infosys shares have risen by 44% on the NSE since Sikka took over.

"More than anything, the company has stabilised, especially the sales engine, and the flurry of negativity appears to be a thing of the past," said Tom Reuner, managing director at HfS Research.

By returning unequivocally to normalcy, and even industry-leading growth, Infosys is setting itself on a path to again becoming the trend-setter, especially where it matters most - delivering results based on expertise in cutting-edge technology which works for customers.

With Tata Consultancy Services showing signs of declining growth momentum, and Wipro continuing to struggle with growth, Infosys and Sikka will be keenly watched for their ability to show that the transformational project work sustainably.

The strong performance from Infosys also comes during a time when global IT spending is growing at its slowest pace in nearly a decade. In January, technology researcher Gartner said it expected global tech spending to grow by just 0.6% to $3.54 trillion in 2016.

Sikka has been advocating what is known as ‘Design Thinking’ which involves a user-centric problem-solving approach, and embracing automation to reduce costs and improve efficiency. He has attempted to balance the twin demands of building revenue momentum while positioning the company to cope with changes brought on by technologies such as cloud computing.

"Going by Infosys’ performance, its improving client metrics, its market share gains/positioning with anchor clients and the continually broad-basing nature of its growth, it seems the articulated slogans are beginning to have their bite," said Viju George of JPMorgan India in a note to clients on Friday.

For the January-March quarter, Infosys posted a net profit of $533 million on revenue of $2.45 billion. It added a net 47 clients, raked in $757 million worth of contracts from large deals and slowed annualised employee attrition to 17.3%.

Analysts on average were expecting a revenue guidance of 11-13% in constant currency terms, according to an ET poll. In rupee terms, net profit rose 16.2% to Rs 3,597 crore on revenue of Rs 16,550 crore, which was up 23.4% from last year. Other than financial services and insurance, growth was robust in all verticals, and North America was the only area of softness.

The ‘normal-is-boring’ routine could potentially be disrupted by any of the cofounders who are still classified as promoters of the company, but Sikka said he is not concerned by that. Earlier this month, less than a quarter of the promoter-shareholders voted in favour of resolutions extending Sikka’s term (and increasing his performance-based compensation) and appointing investment professional Punita Kumar Sinha as an independent director. "Ask the promoters about their voting," Sikka said.